Obama gets a D in Part D economics

  • by: |
  • 06/12/2015

From the pages of the Houston Chronicle:

Pitts: Obama's drug crusade comes at high price

Medicare Part D program, which provides affordable drug insurance, needs to be emulated, not reformed

A new federal report misleadingly estimates the cost of the Medicare Part D program at $103 billion. That figure is bunk. Nonetheless, it will give President Barack Obama more ammunition for his assault on Part D - a program that provides affordable prescription drug insurance to more than 2 million Texas seniors.

Already, the president has pushed for government controls on drug prices in Part D - a "reform" he endorsed in his 2016 budget.

But Part D doesn't need to be reformed - it needs to be emulated. The program is a historic success. Federal interference in Part D drug pricing would destroy that success and drive up the cost of medications, reduce enrollee choice, and harm patients.

Part D drug coverage is affordable for seniors and taxpayers alike. The average monthly premium for a Part D plan is around $32 - and hasn't changed much over the last five years.

Nearly a decade after Part D was created, the program's overall costs are almost $350 billion below initial estimates, according to the Congressional Budget Office.

Unsurprisingly, the program is enormously popular. Among beneficiaries, Part D's satisfaction rate is roughly 90 percent.

Yet the Obama administration wants to tamper with the program by bargaining directly with drug manufacturers for rebates on Medicare prescriptions.

Currently, the law that established Medicare Part D prohibits federal officials from interfering "with the negotiations between drug manufacturers and pharmacies and [prescription drug plan] sponsors."

The Obama administration views this lack of government negotiation as a shortcoming that boosts Part D's cost. But non-interference is actually essential to the program's success.

Indeed, the reason the program is able to deliver satisfactory coverage at such a reasonable cost is its competitive structure. Under Part D, Texas beneficiaries are free to choose from 32 different private coverage plans.

In order to win customers, plan providers compete with each other to offer the best policies at the lowest cost, driving down prices in the process.

This arrangement works because private insurers are able to secure their own drug rebates through private negotiations with pharmaceutical firms. These rebates frequently amount to a 20 or 30 percent discount. And those savings are passed on to beneficiaries.

If the federal government intrudes on private Part D negotiations, the competition driving the program's success will collapse. Drug prices will go up. Quality of plans will go down.

Worse, federal interference in the negotiations wouldn't result in lower drug prices, as the Obama administration claims. Researchers from the Congressional Budget Office have concluded that government officials "would be unable to negotiate prices across the broad range of covered Part D drugs that are more favorable" than the prices achieved by private insurers.

Unfortunately, the administration's rhetoric against Part D ignores these existing discounts. The $103 billion figure, which comes from a Center for Medicare and Medicaid Services report, doesn't account for the discounts either. CMS simply tallied up the market price of all drugs dispensed through Part D.

Factoring in those privately negotiated rebates paints a more accurate picture of Part D annual costs, which are closer to $62 billion.

Federal intervention won't lower Part D's total cost, but it will make it harder for seniors to get the medicines they need. According to Douglas Elmendorf, the former head of the Congressional Budget Office, negotiating for a lower drug price on a given drug carries "the threat of not allowing that drug to be prescribed." Beneficiaries could loss access to treatments they now depend on to stay healthy.

Sadly, none of these facts have stopped the Obama administration from trying to interfere in Part D price negotiations. But it's important to ask: What does the president hope to accomplish with his proposal?

If the president's aim is to expand access to affordable prescription drugs, he should be celebrating Part D - not trying to destroy it.

Pitts, a former FDA associate commissioner, is president of the Center for Medicine in the Public Interest.


Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.

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